Monetary policy and credit flows

Timothy Bianco

Journal of Macroeconomics, 2021, vol. 70, issue C

Abstract: The paper assesses the impact of monetary policy shocks on credit reallocation and evaluates the importance of theoretical monetary policy transmission mechanisms. Compustat data covering 1974 through 2017 is used to compute quarterly measures of credit flows of borrowing firms. I find that expansionary monetary policy is associated with positive long-term credit creation and credit destruction (i.e. credit reallocation). This impact is larger for financially constrained firms and those that are perceived as relatively risky to the lender. This is predicted by the balance sheet channel of monetary policy and mechanisms that reduce lenders’ risk perceptions and increase the tendency to search for yield.

Keywords: Credit reallocation; Credit constraints; Monetary policy transmission (search for similar items in EconPapers)
JEL-codes: E32 E44 E51 G21 G32 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:70:y:2021:i:c:s016407042100063x

DOI: 10.1016/j.jmacro.2021.103362

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